FedEx posts higher 2Q net income, announces cost-reduction initiatives

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FedEx Corp. today, Dec. 18, reported the following consolidated results for the second quarter of its 2009 fiscal year:

  • Revenue of $9.54 billion, up 1 percent from $9.45 billion the previous year;
  • Operating income of $784 million, up from $783 million a year ago; and
  • Net income of $493 million, up 3 percent from last year’s $479 million.
  • FedEx Express reported revenue of $6.10 billion, up 1 percent from last year’s $6.04 billion; and operating income of $540 million, up 2 percent from $531 million a year ago. FedEx Ground reported revenue of $1.79 billion, up 5 percent from last year’s $1.70 billion; and operating income of $212 million, up 23 percent from $173 million a year ago. Total combined average daily package volume in the FedEx Express and FedEx Ground segments was down 2 percent year over year, as the weak economy reduced demand for shipping services.

    FedEx Freight reported revenue of $1.20 billion, down 3 percent from last year’s $1.24 billion; and operating income of $32 million, down 59 percent from $79 million a year ago. Less-than-truckload average daily shipments decreased 2 percent year over year as market share gains were more than offset by the weakening U.S. economy. LTL yield declined 1 percent as higher fuel surcharges were offset by the effects of a competitive pricing environment. Operating income and margin decreased in the quarter due to the competitive pricing environment and lower average daily shipments, partially offset by the benefits from lower variable incentive compensation and continued cost-containment initiatives, including the alignment of staffing to current volume levels.

    Cost-reduction initiatives

    “Our financial performance is increasingly being challenged by some of the worst economic conditions in the company’s 35-year operating history,” said Frederick W. Smith, chairman, president and chief executive officer of Memphis, Tenn.-based FedEx Corp. “We are managing our costs and taking full advantage of market opportunities.” Smith said that with the decline in shipping trends during the company’s second quarter and the expectation that economic conditions will remain difficult through calendar 2009, “we are taking additional actions necessary to help offset weak demand, protect our business and minimize the loss of jobs.”

    FedEx said it already has taken actions to reduce more than $1 billion of expenses for all of fiscal 2009, including elimination of variable compensation payouts, a hiring freeze, volume-related reductions in labor hours and line-haul expenses, discretionary spending cuts, and personnel reductions at FedEx Freight and FedEx Office.

    The company said it also now is implementing a number of additional cost-reduction initiatives, including base salary decreases, effective Jan. 1, including a 20 percent reduction for Smith, a 7.5-10 percent reduction for other senior FedEx executives, and a 5 percent reduction for remaining U.S. salaried exempt personnel; elimination of calendar 2009 merit-based salary increases for U.S. salaried exempt personnel; and suspension of 401(k) company matching contributions for a minimum of one year, effective Feb. 1.

    The company expects these additional actions to reduce expenses by $200 million during the remainder of fiscal 2009 and about $600 million in fiscal 2010; in addition, each operating company is evaluating other measures should business conditions further deteriorate. “While the departure of DHL from the U.S. domestic package market presents a rare opportunity, significant uncertainty exists in the global economy,” said Alan B. Graf Jr., FedEx Corp. executive vice president and chief financial officer. “Our latest earnings outlook reflects that uncertainty and incorporates the expected savings from our cost-reduction actions.”